The Bank of New York Mellon v. Michael R. Green, Case No. 41D01-0901-MF-00027, Johnston Superior Court (Sept. 20, 2010), held that Bank of New York Mellon‘s mortgage is enforceable and that MERS as the mortgagee, had the right to assign the mortgage. Additionally, the court found that there is no disconnection between the note and mortgage since MERS was defined as both mortgagee and nominee for Fremont, the lender, and Fremont‘s successors and assigns and acted in accordance with the terms of the mortgage.
Author Archives: Gloria Liu
Georgia Bankruptcy Court Holds that Security Deed Creates an Agency Relationship Between Lender and MERS
In Drake v. Citizens Bank of Effingham, et. al., AP No. 10-4033 (Bankr. S.D. Ga. Feb. 28, 2011), the court held that the security deed granted to MERS satisfied the requirements of Georgia law and the language of the security deed created an agency relationship between the lender and MERS. The debtors purchased real property and to complete the transaction, they borrowed the purchase money from Citizen’s Bank of Effingham, executed a promissory note for the borrowed amount, and executed a deed to secure debt as security for that loan. The security deed named MERS as grantee and nominee for Citizen’s Bank and its successors. The note was transferred multiple times, with different entities taking possession, ownership, and servicing rights at different times. Ownership and possession of the security deed were transferred at least once. When Debtors filed Chapter 7, the Trustee commenced an adversary proceeding to determine the extent, validity, and priority of the security deed, asserting that the mortgage note was unsecured.
The court found that there “was no split of the Note and Security Deed as a matter of contract by any transfer of the Note, because the Security Deed expressly contemplate[d] that the Note [could] be transferred from the original Lender, and that MERS’ role as nominee for the Lender extend[ed] to each successive assignee.” It also held that “the note and the deed must (and do) retain a legal nexus except on the rare occasions when a mortgagee will wish to disassociate the obligation and the mortgage, but that result should follow only upon evidence that the parties to the transfer so agreed.”
Connecticut Superior Court Recognizes MERS’ Status as Mortgagee and MERS’ Subsequent Assignee
In LaSalle Bank v. Johnson, No. CV‐085016113, 2009 WL 2872844 (Conn. Super. Aug. 10, 2009), the court recognized MERS’ status as mortgagee and MERS’ subsequent assignment of the mortgage. Fremont Investment & Loan loaned Ronald Johnson $192,000.00. To secure a loan from Fremont Investment & Loan, homeowner gave a mortgage to MERS. A foreclosure action against the homeowner was then commenced for unpaid water and sewer services and a judgment of foreclosure by sale was obtained. In that case, Fremont was named as a defendant but MERS was not. During the foreclosure sale, JMP emerged as the successful bidder and the deed was recorded under JMP. After the judgment of foreclosure by sale, MERS assigned its mortgage to LaSalle Bank. The court held that as assignee, LaSalle had standing to not only bring an action to foreclose its mortgage but it also entitled to summary judgment. Therefore, it upheld LaSalle’s contention that due to WPCA’s failure to name MERS as a party defendant, LaSalle is an omitted party and did not have its mortgage extinguished by the prior foreclosure action by WPCA and therefore, has standing to bring an action against JMP.
US District Court for Arizona Rejects Split-Note Theory Claim Made in Multi-District Litigation
In In Re MERS Litigation, 09-2119-JAT (D. Ariz. 2011), the case was a multi-district litigation concerning claims related to the formation and operation of MERS, Inc. and MERSCORP, Inc. The plaintiffs alleged violations of Arizona Revised Statutes (“A.R.S.”) § 33-420; the tort of wrongful foreclosure; violations of Nevada Revised Statutes § 107.080 and Oregon Revised Statutes § 86.735; allegations of aiding and abetting wrongful foreclosure; aiding and abetting predatory lending; unjust enrichment; and slander of title; violations of O.R.S. § 646.607, and South Carolina Code of Laws § 39-5-10. All of the claims turn on the contention that naming MERS as a beneficiary on the deeds of trust, and the subsequent operation of the MERS system splits the MERS deeds of trust from their promissory notes and renders these notes unsecured and unenforceable.
The court rejected the contention. They reasoned that none of the cases cited by Plaintiffs support their theory that naming MERS as the beneficiary completely destroys the security and bars all attempts at non-judicial foreclosure in Arizona, California, Nevada, or Oregon. Additionally, the court did not find legal support for the proposition that the MERS system of securitization is so inherently defective so as to render every MERS deed of trust completely unenforceable and unassignable. The court also did not find any of the contentions supported by statutory authority.
Texas District Court Found that Bank Had Standing because it had Promissory Note and Affidavit
In Santarose v. Aurora Bank FSB, No. H-10-0720 (S.D. Texas 2010), homeowners alleged wrongful foreclosure. The homeowner executed a promissory note in connection with a purchase money loan from Lehman Brothers Bank. The homeowners executed a deed of trust securing the payment of the Note. Homeowners assert that Aurora did not possess the original promissory note and therefore had no evidence that it loaned them any money. In addition, the Deed of Trust is a contract that homeowners have with themselves and can change at any time. Homeowners also asserted that MERS did not have standing to conduct the foreclosure. The court found that Aurora produced the original promissory note in open court and also submitted an affidavit attesting that Aurora/Lehman has been the sole owner of the Note since the inception of the loan. The Note lists Lehman Bank, Aurora’s predecessor in interest, as the “Lender” and defines “Note Holder” as “[t]he Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note . . ..” Therefore, the court held that there was no factual basis for homeowner’s suspicion that Aurora did not have the original promissory note as evidence of its loan to the homeowners.
Washington District Court Holds that if MERS has a Beneficial Interest, the Designee can Initiate Foreclosure
In Daddabbo et al v. Countrywide Home Loans, No. C09‐1417‐RAJ, 2010 WL 2102485 (W.D. Wash. May 20, 2010), the court found that MERS had a beneficial interest in the note that the deed of trust secures. The court rejected the contention that MERS has no beneficial interest in the note, and that Recontrust therefore has no power as MERS’s designee to initiate a foreclosure action. The court found that the deed of trust, of which the court takes judicial notice, explicitly names MERS as a beneficiary. Since the deed of trust grants MERS not only legal title to the interests created in the trust, but the authorization of the lender and any of its successors to take any action to protect those interests, including the right to foreclose and sell the Property, the court found that Recontrust had standing to foreclose.
Washington District Court Held that MERS was Properly a Beneficiary
In Vawter v. Quality Loan Service Corp. of Washington, 707 F.Supp.2d 1115 (W.D. Wash. Apr. 22, 2010), the court dismissed the homeowner’s claim on the basis that MERS was properly a beneficiary and entitled to effect sale of defaulted‐upon property. The homeowners applied for a loan to refinance their home. This culminated in the execution of an adjustable-rate note in the amount of $328,000 with Paul Financial, LLC. The note was secured by a deed of trust, which listed Paul Financial as the lender, MERS as the beneficiary, “acting solely as a nominee for Lender and Lender’s successors and assigns,” and First American Title Insurance Company as the trustee. The note was transferred from Paul Financial to Chase. The homeowners were notified that Homecomings Financial would begin servicing their loan. They were then told by Homecomings Financial that Washington Mutual Bank, which was subsequently acquired in part by Chase, would take over the servicing of their loan. The homeowners argued that when Chase obtained possession of the note they knew he was the “purported holder” and could not “properly ascertain its real role in connection with their mortgage loan.” The parties to the Deed of Trust also changed over time. MERS assigned its beneficial interest under the Deed of Trust to Chase. The homeowners acknowledged that MERS was listed on the Deed of Trust as holding the beneficial interest, but contested whether MERS was actually entitled to serve as the beneficiary, asserting that “[t]he entirety of MERS’ representations about its role and authority to act is false.” The court dismissed these claims and found that MERS was properly a beneficiary given the language in the note.
Moreover, the court looked at the Deed of Trust Act (“DTA”). In Washington, the DTA defines a dead of trust as a form of three-party mortgage. In 1965, the Washington legislature enacted the DTA which involving not only a lender and a borrower, but also a neutral third party called a trustee. Under the definition in the DTA, the court found that the homeowners failed to plead a viable claim under the DTA and Washington law. They stated that the cause of action, though styled in the complaint as a claim for wrongful foreclosure, is properly construed as a claim for wrongful institution of non-judicial foreclosure proceedings since the trustee’s sale was discontinued.
